No Follow-Through on Rally

Chartists will understand that most of the trade after 2:30 (the last 100 points on the Dow) on Wednesday was options-related and short covering, thus, follow-through needed some form of impetus. After the close on Wednesday, IBM released first quarter earnings data ahead of expectations, which looked as though it could be that fuel for a second leg of the massive Wednesday rally.

By Thursday morning, IBMs results were already old news.

Prior to the markets' opening, investors digested two bits of news. Initial claims for unemployment insurance shot up to 372,000. Merrill Lynch (MER) lost money for the third consecutive quarter, losing $2.14 billion, or $2.19 per share in the first quarter of 2008.

Rally over.

By the end of the day, stocks ended mixed, but mostly down.

Dow 12,620.49 +1.22; NASDAQ 2,341.83 -8.28; S&P 500 1,365.56 +0.85; NYSE Composite 9,173.81 -29.95

Declining issues took back the initiative from gainers, though by a slim margin, 3453-2782. New highs once more approached, but did not surpass, new lows. There were 189 new lows to 174 new highs.

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After gyrating around the flat-line all day, stocks spent most of the day going nowhere, though after-hours, Google announced higher 1st quarter earnings, providing a possible boost for techs on Friday.

Another major setback was Pfizer (PFE) posting earnings for the quarter of 0.61 cents, five cents below analyst estimates. Overall, earnings are coming in mostly mixed, though hardly terrible. Most of the damage seems to be in financials, retailers and companies with a dominant US-only presence. More globally-based operations are posting better earnings than expected, or are in-line with expectations.

On the commodities front, where everything from corn to used tires seems to be going up in price, the majors took a little bit off the top. Oil was off 7 cents, closing at $114.86, a number that is sending shock waves throughout the world economic community and forcing prices for automotive fuel (gas, diesel), home heating oil and any oil-related products higher.

Gold lost $5.40 to $942.90, while silver fell two cents to $18.31.

Volume was muted, as has been the case for most of the past 45 days. The possible explanations are that investors are sitting back, awaiting more data, though more likely is that hedge funds have been shut down or have substantially slowed the velocity of trade.

The latter explanation is preferable, if only to stem some of the volatility that was evident from last August through this January. Overall, markets seemed to have settled down somewhat, with the mortgage morass under some kind of management - though likely insufficient - and consumers dealing with higher food and fuel prices in whatever ways they can.

What's troubling is how this scenario eventually ends. Prospects of eventually surpassing the all-time highs from 2007 are dim, though the major indices are still only 8-12% off their highs. With the residential housing market still falling and credit markets still close to seizure status, from where is future investment to come?

NYSE Volume 3,682,688,500
NASDAQ Volume 1,838,124,125

It's All About Earnings

Wall Street shrugged aside more defeating economic news and focused instead on upbeat earnings reports from a number of key companies on Wednesday, boosting stocks on a day-long buying binge.

Results from JP Morgan (JPM), Intel (INTC) and Coca-Cola (KO) all beat analyst expectations handily as the bulk of quarterly earnings reports begin to flow from corporations to Wall Street.

Dow 12,619.27 +256.80; NASDAQ 2,350.11 +64.07; S&P 500 1,364.71 +30.28; NYSE Composite 9,203.76 +225.57

The rally was widespread, with 4976 advancing issues to just 1335 losers. The more startling development may be the shift in positions for new highs and lows. On the day, there were 197 new highs and 201 new lows, a very narrow, and generally insignificant, margin.

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What this may indicate is that Wednesday's rally could be the start of a broad move to higher ground, though there still is overhead resistance in the 12,700-12,750 area on the Dow. On the other hand, there is a voided area between 12,700 and 13,700, which could find itself occupied soon if the rally continues.

What will make the entire market move forward are improved earnings, like those seen today. While the price of oil continues to skyrocket, firms seem to be taking the unusual economic conditions in stride, largely unaffected by either slack US consumer demand or unbearably tight credit conditions.

Light, sweet crude oil gained $1.14, to another new record of $114.93 a barrel on the Nymex. In keeping with the tone of the day, gold added another $16.30 to close at $948.30, while silver gained 48 cents to $18.33.

The disconnect between the US economy and the stock market bears some inspection. How American companies can continue turning in solid profits in the face of a stagnant or slowing economy is just one of the implications of globalization. Many stocks listed on the major exchanges are global in scope and benefit from a weakened dollar in foreign markets, so it should not surprise anyone that these companies retain their competitive edge.

Companies that are more nationalistic, such as retailers, are seeing a harder time overall.

NYSE Volume 4,260,363,000
NASDAQ Volume 2,148,321,000

Bad News Spreads but Market Remains in Denial

There was enough discouraging news spreading around Wall Street for even the most intrepid investors to take note, but the major indices shrugged off soaring food and energy prices, more ugly housing statistics and uneven earnings reports to close marginally higher on Tuesday.

According to the monthly Producer Price Index (PPI) issued by the Labor Dept., wholesale prices rose by 1.1% in March and are up a stunning 6.9% over the past 12 months.

Also in March, there were 234,685 foreclosure filings against US homeowners, a 57% increase over last year. Nevada, California and Florida were the hardest hit states in the survey released by Realty-Trac, Inc.

Dow 12,362.47 +60.41; NASDAQ 2,286.04 +10.22; S&P 500 1,334.43 +6.11; NYSE Composite 8,978.19 +55.35

In earnings news, broker Charles Schwab, Inc. (SCHW) reported income from continuing operations rose to $305 million, or 26 cents per share, from $236 million, or 19 cents per share, a year earlier.

Johnson & Johnson (JNJ) bested estimates with $1.26 per share reported for the 1st quarter, though those numbers were tempered by slowing sales in several categories and the overall numbers boosted by the weak US dollar.

U.S. Bancorp (USB) saw a 4 percent drop in its first-quarter earnings while drug maker Forest Labs (FRX) posted improved earnings, but investors punished shares on a disappointing forecast for the remainder of 2008, sending the stock down 9%, losing 3.67 to 36.13.

Advancing issues edged decliners, 3431-2627. There were 277 new lows to just 96 new highs.

The price of oil added to the gloomy overhang, reaching a new high of $113.79, up $2.03. Gold gained $3.30 to $932.00. Silver was up 6 cents to $17.85.

Intel (INTC), Washington Mutual (WM), Coca-Cola (KO), JP Morgan Chase (JPM) and Wells Fargo (WFC) highlight the companies releasing earnings on Wednesday. The March CPI reading will also hit the markets prior to the open, and considering today's PPI numbers, they're likely to send another shock.

How long the markets can continue to ignore the steady flow of bad news is anyone's guess, but, considering the low volume of trading the past couple of weeks, the guessing game may soon be at an end as investors protect whatever profits they have left by selling.

NYSE Volume 3,540,240,250
NASDAQ Volume 1,843,419,375

Quiet Day Keeps Stocks in Range

Stocks zigged and zagged in a tight range on Monday (85 points in all on the Dow), but eventually ended the day on an unpleasant note as investors line up for earnings reports from major companies.

The most salient news was from Wachovia (WB), the latest victim in the ongoing banking/finance/credit crisis, posting a first quarter loss of $393 million or 20 cents per share. The nation's 4th largest banking outfit announced a cut to its dividend from 64 cents to 37.5 cents and is actively pursuing a $7 billion cash infusion through the sale of common and preferred stock, a highly dilutive - and desperate - plan.

Shares of Wachovia were hammered, losing more than 8% on the day.

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Overall, the news was pretty ugly, though largely expected, thus, the market's tepid reaction. Oddly enough, while the US equity market barely budged from the break-even line, indices around the world were roiled even before the Wachovia news, though especially the far-Eastern markets. The Nikkei and Hang Seng both lost more than 3%. European markets sustained losses of roughly 1% overall, while the US markets were essentially flat.

Whatever there is to the correlation between world markets, it seems that the US generally fares better, even though it is the bearer of most of the bad news. How far risk has been spread comes into play, as does the relative strength/weakness of currencies and economies. The confounding issue is that with all the weakness in the US economy, stocks still have not responded in a cascade of losses. Maybe the upcoming spate of earnings reports is about to change that dynamic.

Dow 12,302.06 -23.36; NASDAQ 2,275.82 -14.42; S&P 500 1,328.32 -4.51; NYSE Composite 8,922.84 -13.27

Stock sellers didn't miss any opportunities on Monday. Losing issues outnumbered gainers, 3827-2396. New lows ramped up to 277, to just 84 new highs. That gap continues to expand, signaling another downturn dead ahead for the major indices and stocks in general.

Crude oil gained $1.62 to $111.76. Gold advanced $1.70 to $928.79; silver added 10 cents to $17.79.

The lull in the markets is surely a temporary phenomenon as investors await all-important earnings reports. But, more shocks to the system like that which Wachovia delivered today will not be taken lightly much longer. We're close to a turning point and unless some major companies defied the markets and sentiment in the first quarter, life on Wall Street is going to get a heck of a lot cheaper very soon.

NYSE Volume 3,565,027,000
NASDAQ Volume 1,640,094,875

GE, Consumer Sentiment Savage Stocks

The forecast for Friday was fair, but it turned gloomy as General Electric reported 1st quarter earnings well below analyst estimates and the University of Michigan Consumer Sentiment Survey recorded its lowest reading in 26 years, plunging to 63.2 after checking in at 69.5 in March.

Investors did what anyone would rightly expect, they sold as fast and as much as they could. Shortly after the 10:00 release of the Michigan survey, the Dow was off more than 175 points. It never got much better than that as the Dow recorded its first loss of more than 200 points (a common occurrence in January) since March 18, a span of 17 sessions.

Dow 12,325.42 -256.56; NASDAQ 2,290.24 -61.46; S&P 500 1,332.83 -27.72; NYSE Composite 8,936.11 -160.75

The double dosage of damming economic news was exactly what the market needed to shed its overbought position, leaving the Dow less than 600 points from it's near-term closing low from March 10. With new lows being put in place just about every two months, the markets are in a condition of flux and should remain so unless quarterly reports begin to come in worse than expected. Even if that's the case, a few headline stocks meeting or exceeding expectations will surely fuel big rallies.

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The market in equities continues to be highly volatile, which is a trader's dream or nightmare, depending on how well one reads the tea leaves in the news, economic reports and earnings releases.

As expected declining issues trounced advancers, 4893-1334, or nearly 3-1. New lows expanded their edge over new highs, 201-56. This particular indicator is pointed intensely towards the negative, flashing a bright neon sell sign which should not be missed. After relinquishing the lead to new highs for two days this week, the new lows are beginning to expand once again.

Oil barely moved, gaining only 3 cents to close the week at $110.14. Gold lost $4.80 to $927.00. Silver continues to take larger losses, relative to cousin gold, dropping 35 cents to $17.69 the ounce.

For the week, all of the major indices were lower by roughly 2%. The bear remains in a growling, angry, ravenous mood and with earnings due in force next week, the grizzly one may whet his appetite aplenty.

NYSE Volume 3,693,357,500
NASDAQ Volume 1,918,384,125